The WSJ Editorial Page and the Libor scandal

Blaming everybody but the bankers

When wrongdoing by Big Business is in the news, you can usually count on the WSJ editorial page to do its best to downplay the story and shift the blame to its three favorite boogeymen: the press, the government, and the lawyers.

So it is with the Libor scandal, which just about everyone says could be one of the biggest financial scandals in a long time. From what we know now, there’s no doubt that it’s huge by any reasonable measure.

If you’ve read other news accounts you know that some analysts think the fallout could cost the banks tens of billions of dollars, that some bankers will most likely be exchanging their French cuffs for handcuffs, and that even top Wall Street bankers are comparing the scandal’s impact to tobacco in the 1990s and talking about how “the industry has to regain its moral compass.”

How has the Journal editorial page dealt with all this? First, it ignored the story for a week. Then when it didn’t blow over, it came out swinging for the bankers victimized by the “Barclays Bank Bash.” Here’s the lede (emphasis mine)

Federal gumshoes are hot on the trail of banks suspected of attempting to manipulate a key interest rate. If only it were easy to separate the effect of alleged manipulation efforts by private banks from the deliberate manipulation by government.

You see, even though Barclays just coughed up half a billion dollars and half of its executive team after signing a settlement with the Justice Department that says it “admits, accepts and acknowledges responsibility” for the things Justice says it did, the WSJ gives Barclay’s the benefit of the doubt that the bank itself has waived. No such benefit for the gubmint though, whose “deliberate manipulation” of interest rates, a.k.a. “monetary policy,” the Journal lamely seeks to conflate with Barclays’ fraud.

Then there’s the inevitable red herring about how regulators are responsible for the whole mess for looking the other way while banks lied about Libor. We get several paragraphs of clucking about regulators’ could have done and very little about Barclays’ did actually do.

Ain’t it grand how, if you’re the Journal editorial page, you can argue for the disempowering of regulators on one day, then complain the next that they don’t do squat? Now, if the Journal were arguing that banking regulators were/are hopelessly captured by the banks, it would get no argument here. But of course, it’s not. And the page fails, somehow, to mention that CEO Bob Diamond himself said that the Bank of England’s Paul Tucker never told him to manipulate Libor. They must have missed that one.

That regulators may have failed to act promptly when alerted to this mess hardly excuses those who perpetrated it. And even if regulators looked the other way about Libor manipulation once they knew about it, no one has said regulators told the other banks to start lowballing Libor to begin with.

Compare the Journal’s treatment of regulators to how the paper wiggles around honkingly clear evidence of the bank’s conspiracy: emails between Barclays bankers that show them trading favors to lie about borrowing costs:

Perhaps some of this chatter, given appropriate context, might represent mere humor or Master-of-the-Universe bravado.

Boys will be boys. What next?

The following day it was Holman Jenkins’s turn at bat. He pooh-poohed “the latest scandal of the century,” calling the fraudulent misreporting of borrowing costs a “fudge,” and tried—also—to shift the blame almost completely to regulators.

The “blame regulators” thesis make even less sense when you consider that in Barclays’s case, at the very least, bankers had been manipulating Libor for years before the financial crisis began. Sometimes they would lie to try to push Libor up to make trading profits.

Jenkins seems perplexed by this (emphasis mine):

Some Barclays emails imply that traders, even before the crisis, sought to influence the bank’s Libor submissions for profit-seeking reasons. This is puzzling and may amount to empty chest thumping. Barclays’s “submitters” wouldn’t seem in a position to move Libor in ways of great use to traders. Sixteen banks are polled to set Libor and any outlying results are thrown out. Plus each bank’s name and submission are published daily.

It’s only puzzling if you didn’t read that Barclays traders wanted the bank to be an outlier—“preferably we get kicked out.” Why would they want to get kicked out of the measurement? Dealbreaker’s Matt Levine:

…if everyone else says 0.50, 0.51, 0.52, 0.53, 0.54, and Barclays was honestly going to be 0.52 and you throw out the high and low, then you get an average of 0.52 if they submit honestly, whereas if they submit 0.55 then you kick them out and get an average of 0.525.

Last week, the Journal edit page continued to minimize the banks’ Libor fiasco, calling it “a minor scandal” in the subhead, reiterating Jenkins’s “fudge” line, and writing that the “political circus” is “largely an excuse for politicians to beat up on ‘greedy bankers.’”

This is just a cynical defense of fraud:

The bipartisan outbreak of market purism in Parliament and the media is refreshing in one sense—never have so many, of such different political persuasions, argued so eloquently for the virtue of unadulterated price signals.

In defending banker con-artistry, the Journal forgets that marketplace corruption, among other things, wrecks the market itself.

The Journal ran an op-ed the same day by former Bear Stearns economist David Malpass—last seen here downplaying the possibility of a deep recession, that deftly shifts the focus to lawyers—on how the “world can’t afford endless litigation against the financial system.”

This morning, the paper runs another editorial shifting attention away from the banks and on to regulators. At least we can agree on its kicker:

If heads are going to continue to roll over Libor, they should also include those of Mr. Geithner and the rest of the regulators who let this slide.

No kidding.

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